By taking a partial look at the evolution of customer loyalty programs, it is easy to see why so many rewards-based programs are not delivering what the customer really wants.
According to the Turkish tour guide who showed us around the ruins, the first documented “loyalty” program was recorded in Ephesus (ancient Turkey) in the 2nd Century AD. Rival oil merchants apparently would offer customers a free amphora refill every 5th time and would give customers special stones to mark each of the first 4 purchases.
Apocryphal? Who really knows? What is clear, however, is that merchants have been finding ways to encourage customer loyalty for centuries through use of discounts, “buy one get one free”, punch cards and various other types of offers.
In the 1970s, the first of the airline frequent flier programs made its debut. At the time it was a powerful way to get people to choose one airline over another. As more airlines jumped on the loyalty bandwagon, and more people started accumulating frequent flier miles in different programs, however, lines were drawn. If someone were racking up miles in one program, flying on another airline meant making a negative decision against himself (or herself).
The natural human response: Join the other loyalty programs.
Seeing the sign-ups and changing reservation patterns, car rental companies, hotels and others in the travel business entered the fray. As did large retailers such as Zellers, sub stores, coffee chains, grocery stores, video rental outlets... you name it and today it probably has some kind of loyalty program. You’ll also find online programs such as Mypoints, Ebates and other that reward loyal shoppers. There are even non-profit online services such as SchoolPop and iGive.com that have been created with built-in have loyalty building mechanisms.
The result is that today, over 80% of North Americans participate in at least one loyalty program*. One third belongs to two or more – and a whopping 10% of North Americans now participates in more than 20 loyalty programs.
According to COLLOQUY, the average for the US: 14.1 programs. For Canadians the average is 17.5. Not surprising given the proliferation of such programs. In Europe the numbers are lower, but on the rise there, too, nevertheless. According to both Forrester Research and META Group, people’s propensity to join such programs is not expected to diminish in the near future, despite the diminishing of perceived value to the average consumer.
Why is that? In our parents’ and grandparents’ day, the “loyalty program” was actually the service provided by the corner store grocer. He built relationships with his loyal customers and they came to count on him. When Mrs. Smith’s had family coming in from the east coast, he made sure to order her dad’s favourite lamb roast. When the White’s daughter was getting married, he ordered in special ink to use on the invitation envelopes. When Mr. Green was injured at work, the grocer brought the 50 lb. bag right to the house because he knew the Greens’ sons were only 2 and 3 years old. As for the beef bones, they were always saved for the Coxwell’s collies.
Customers were loyal to the establishments where they were recognized and treated as though they were special.
For a while, we in North America moved away from expecting this kind of special personalized, customized service, but the pendulum is swinging back.
Today, with consumers understanding that companies can track individual orders and keep track of who spends what with a company, there is a returning desire to receive the old-fashioned corner store recognition.
The advent of social media tools is increasing this expectation, so marketers need to re-examine how they will use their loyalty programs for these programs to remain effective.
Today, a formal rewards-based customer loyalty program must...
• Capture customer demographic, transactional and preference data. Systems must be designed to allow for easy analysis of the data, and marketing initiatives need to be deployed accordingly;
• Make use of the information to better understand customers’ behaviour patterns and preferences in order to improve the product offering, customize service and create more meaningful relationships with customers;
• Receive adequate financial and personnel support to provide customers with relevant benefits – benefits that will actually help to influence customer behaviour;
• Include customized services and/or packages and/or communication that respond to the specific needs of individual customer cluster groups; and
• Offer special benefits to the best customers.
It’s funny, but as we have become more technologically sophisticated, we are seeing a return to older time customer service values... and the marketers who recognize this, and put in place the systems to provide this level of service to the best customers, will be able to capitalize on what is transpiring in the market.
Well, I guess that's it for now. My next post will start to outline some of the things you can do to get more bang from your customer loyalty program buck.
In the meantime, if you would like clarification on anything, please feel free to contact me: jmc@theQgroup.com.
Until next time, remember to have fun and be prepared to “go out on a limb because that is where the fruit is.”
Jane-Michèle Clark
*This figure is hard to quantify, but Jupiter Research puts the figure at +75%, The Q Group Research says 85% and other studies show figures anywhere from 80% - 90%. Differences in regional and demographic skews account for the differences in stats, but most marketers agree that +80% is a reasonable figure.
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